New Goals for American Corporations

By Ralph Gomory, Research Professor, and Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets and Professor of Economics

The great American corporations today are doing well for their top executives and shareholders, but this does not mean that they are doing well for the country as a whole.

"Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions."

That quote is not from an Occupy Wall Street organizer or some modern-day corporate watchdog, but from President Theodore Roosevelt, as part of his First Annual Message to Congress in 1901. Indeed, questions about the actions and purposes of American corporations have been with us as long as corporations themselves.

Today, people are once again raising basic questions about how well corporations work, including: why, in the current financial and economic crisis did large financial institutions and industrial firms get bailed out by the federal government while so much less is done for homeowners facing foreclosure? Why do the profits of American corporations and the compensation of their executives stay high, and even rise, while jobs disappear and economic growth and median family incomes stagnate?

If there is any surprise about the current crisis, it is not that worries about corporate power and its abuse are once again being raised, but that so little is being done about them in comparison with earlier crises in our nation's history.

In the Gilded Age of the late nineteenth century, the U.S. witnessed the rise of the robber barons, business leaders who amassed great power and wealth, as did the great financiers of Wall Street. At that time popular politicos, such as Roosevelt, took up the concerns ordinary Americans had about the corporate concentration of wealth and power. Antitrust laws were adopted and corporate regulation increased. Similarly the Great Depression of the 1930s, which again put the financial and corporate sectors under a cloud, resulted in a host of New Deal reforms and the legitimization of labor unions.

With these changes in place, the early decades after World War II went well for everyone. Corporate leaders, in various ways, balanced the interests of managers, stockholders, workers, consumers, and society. Unions were at their strongest then, and they pushed for higher wages as well as health care and retirement benefits from their corporate employers. ""What's good for General Motors is good for the country and vice-versa"" did not seem outrageous at that time. But that was about to change.